The DC component of the encoded signal is not dependent on the data and therefore carries no information, allowing the signal to be conveyed conveniently by media (e.g., Ethernet) which usually do not convey a DC component.

Extracting the original data from the received encoded bit (from Manchester as per 802.3):

original data = clock XOR Manchester value
0 0 0
0 1 1
1 0 1
1 1 0

Summary:

Each bit is transmitted in a fixed time (the "period").

A 0 is expressed by a low-to-high transition, a 1 by high-to-low transition (according to G.E. Thomas' convention—in the IEEE 802.3 convention, the reverse is true).[1]

The transitions which signify 0 or 1 occur at the midpoint of a period.

Transitions at the start of a period are overhead and don't signify data.

Manchester code always has a transition at the middle of each bit period and may (depending on the information to be transmitted) have a transition at the start of the period also. The direction of the mid-bit transition indicates the data. Transitions at the period boundaries do not carry information. They exist only to place the signal in the correct state to allow the mid-bit transition. The existence of guaranteed transitions allows the signal to be self-clocking, and also allows the receiver to align correctly; the receiver can identify if it is misaligned by half a bit period, as there will no longer always be a transition during each bit period. The price of these benefits is a doubling of the bandwidth requirement compared to simpler NRZ coding schemes (or see also NRZI).

Manchester encoding is a special case of binary phase-shift keying (BPSK), where the data controls the phase of a square wave carrier whose frequency is the data rate. Such a signal is easy to generate.

The first of these was first published by G. E. Thomas in 1949 and is followed by numerous authors (e.g., Andy Tanenbaum).[2] It specifies that for a 0 bit the signal levels will be low-high (assuming an amplitude physical encoding of the data) - with a low level in the first half of the bit period, and a high level in the second half. For a 1 bit the signal levels will be high-low.

The second convention is also followed by numerous authors (e.g., William Stallings[3]) as well as by IEEE 802.4 (token bus) and lower speed versions of IEEE 802.3 (Ethernet) standards. It states that a logic 0 is represented by a high-low signal sequence and a logic 1 is represented by a low-high signal sequence.

If a Manchester encoded signal is inverted in communication, it is transformed from one convention to the other. This ambiguity can be overcome by using differential Manchester encoding.